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F R O M T H E F O U N D E R
I t’s one thing to track and report on the right metrics, and then share those performance numbers with your people. But not everyone understands WHY those numbers are so important. Not only do you need to monitor and report on the right performance metrics for your firm, but you also have to explain what these numbers mean to your people. Why certain numbers are important
Knowing the “why” is critical if you want your people to drive those numbers in the right direction. Following is a review of a couple performance metrics AEC firms (and the “C” stands for consulting in this case – not construction) regularly use, how they can be manipulated, and why they are so critical. 1)Utilization. Utilization is defined as raw direct labor (in dollars) divided by total raw labor cost. It is expressed as a percentage, and serves as a measure of how much time your people are spending on projects that clients are theoretically paying for versus how much time they are spending on other stuff that clients are not paying for. When utilization is low, it can mean any number of different problems exist. There could be too many people working on client projects that the company has. That can mean the firm needs to lay off some people or quickly get more work that clients will pay for. But those aren’t the only reasons utilization can be low. It could also be low because the firm has too
many other things that employees are required to do – activities that are not paid for by their clients. Too many internal meetings, for example, can drive utilization down. Too much bureaucracy can also drive it down, such as cumbersome time sheet and expense reporting, or overly difficult forecasting or manpower allocation systems that take too much work to maintain. Vacation, sick leave, and sabbatical policies can also be too liberal and drive down utilization. People may not have enough time in the day to charge to actual projects by the time they do everything else that is required of them. Management could also be contributing to the low utilization problem if their culture and practice says higher-paid people only manage other people and don’t work on and charge their time to projects. That will drive utilization down disproportionately, because those people have higher salaries than the average employee and add to the denominator in the utilization equation more quickly than a lower-paid person would.
Mark Zweig
See MARK ZWEIG, page 12
THE ZWEIG LETTER AUGUST 16, 2021, ISSUE 1404
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